By Uday Sampath Kumar and Lisa Baertlein
(Reuters) – COVID-19 infectious interventions in major states such as California, Texas and Florida are scaring buyers away from reopening malls, dealing a blow to an industry that was on the ropes even before the pandemic began.
Simon Property Group, the No. 1 owner of the U.S. center, is expected to post its smallest quarterly profit in nearly six years on Monday as the drop in foot traffic and premature closures mandated by the government resulted in tenants being unable to or did not want to pay the full rent.
“Future profits for mall owners could be one of the worst neighborhoods ever,” said Compass Point Research & Trading analyst Floris van Dijkum.
The pain of a major retail bankruptcy, including Neiman Marcus and Brooks Brothers, and hundreds of store closures from Macy’s and Nordstrom stores and others is far from over for malls, as the coronavirus pandemic takes a large toll on bricks and retailers. mortar that was already losing sales to competitors online.
Simon owns, in whole or in part, seven of the country’s top 10 malls, measured by tenant sales. Its domestic centers in pandemic-ravaged states have been hit particularly hard. Walking traffic was down more than 50% at the Houston upper gallery and Miami Aventura Mall in mid-July, according to cell phone tracking data provided by Unacast.
Even the Simon Sawgrass Mills outdoor recreation center in Florida, the No. 1 U.S. center, was not immune, with traffic down 37% in mid-July while COVID-19 infections came in high. But at Woodbury Common Premium Outlets, an outdoor center in New York where infections are under control, the decline was only 8%.
For an interactive graph of weekly foot traffic in the 10 largest U.S. malls, click here: (https://tmsnrt.rs/3ilZ2KS)
Simon’s strong liquidity position, aided by his June decision to abandon a $ 3.6 billion deal to buy the Taubman Centers, is expected to help calm the pandemic worse. It had nearly $ 4 billion in cash or its equivalent at the end of March.
But analysts say she has a powerful battle ahead as her retail tenants fight for their lives.
Simon did not respond to a request for comment.
Reuters reported in June that Indianapolis-based Indianapolis and Brookfield Properties partners were in joint talks to bid for JC Penney, a major anchor of stores for centers that filed for bankruptcy in May and whose survival depends on urgent negotiations. sales.
“When you have to start buying your tenants, you’re in big trouble,” said Scott Crowe, chief investment officer at CenterSquare Investment Management.
“It’s the complete antithesis of being a landlord. The only reason someone would buy a retailer is because it is the weakest option and they know they will not be able to rent that space to anyone. next, “he said.
However, this is not Simon’s first blow to buying a retailer. Simon and Brookfield, along with a third company, acquired Forever teen clothing chain last February 21, and Simon in 2016 was part of a consortium that bought a teen clothing retailer, Aeropostale https: // www .reuters.com / article / us- Aeropostale-ma-authenticbrands-idUSKCN1180AC.
On Sunday, the Wall Street Journal, citing sources, reported that Simon and Amazon.com Inc. are exploring the conversion space of formerly occupied malls by JC Penney and Sears Holding Corp. to distribution centers in Amazon. Simon did not respond to a Reuters request for comment. An Amazon spokeswoman said the company has a policy of not commenting on rumors or speculation. Sears and JC Penney declined to comment.
The challenges are now intense. Companies like the maker of Coap Tapestry Inc. trainer bags that wake up from declining store traffic say mall vendors need rent cuts to survive.
Merchandise rents, which rose 2.5% year-over-year over the past four years, could fall to 4.3% in 2020, according to real estate analytics company CoStar Group.
However, experts are swearing that the malls will have a place, albeit much smaller, in the post-pandemic world as many buyers still prefer to see, touch and try before they buy. “At some point when enough centers open, those who survive – the Simons and Maceriches of the world – will come out stronger,” said Michael Jerbich, president of B. Riley Real Estate.
(Reporting by Uday Sampath in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Leslie Adler)